Christina Romer Gets the Clinton Stock Bubble Wrong

In an otherwise excellent column calling attention to the need for a lower dollar, Christina Romer, formerly President Obama's chief economist, implies that the run-up in the dollar in the late 90s was due to "brilliant American innovation." Actually the rise in the dollar was fueled initially by the need for the East Asian countries to accumulate dollars as a result of the conditions imposed by the IMF bailout from the region's financial crisis.

The inflow of money from abroad helped to fuel the stock bubble but it had little to do with productive investment. While the investment share of GDP was somewhat higher than in the late 80s, it was far below the investment share of the 70s.

Furthermore, the share of the investment components taken together, investment plus net exports, was only slightly higher in the 90s than it had been in the 80s and much lower than in the 70s. (The investment share subtracts out motor vehicle leasing [underlying detail Table 2, line 120]. There was a surge in car leasing in the 90s as a substitute for car purchases. A leased car would count as investment in GDP accounts, while a purchased car would be included in consumption.)